Talbots tumbles on no deal with Sycamore

AndriaCheng

NEW YORK (MarketWatch) — Talbots Inc. shares plunged 39% Friday after the struggling women’s clothing retailer said its exclusivity agreement with potential buyer Sycamore Partners expired without a deal even after the deadline was extended twice.

Talbots

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Talbots
TLB
said it remains open to pursuing a deal with Sycamore at $3.05 a share and will actively explore other options.

The lack of a deal raises the stakes for Talbots, which has posted losses as sales have declined. Its debt level also more than doubled. Read”Talbots’s nasty breakup.”

Sycamore declined to comment beyond what’s already in the release.

Talbots has trailed rivals, including Ann Inc.
ANN, +0.00%
and Chico’s FAS Inc.
CHS, +4.14%
as it struggles to find the right mix between attracting a 45- to 54-year-old customer base while retaining its core 55- to 74-year-old clientele, analysts have said.

Shares of Talbots fell to $1.57; its stock has lost 65% in the past year. In comparison, its rival Ann, parent of Ann Taylor stores, has risen 1.2% during the same period and was up slightly in late afternoon trading. Chico’s shares also edged up in the most recent trading and are up 7% in the past year.

New York-based Sycamore, which reported about a 9.9% stake in the company last August, reached an exclusivity agreement with Hingham, Mass.-based Talbots earlier in May after it raised a December bid by 5 cents a share to $3.05 a share. The agreement was extended twice and expired on Thursday.

Sycamore’s managing director Stefan Kaluzny is a former managing director at Golden Gate Capital, which bought Talbots’s acquired J. Jill women’s label in 2009 for much less than what Talbots originally had paid.

Talbots said in December it was exploring strategic alternatives.

Based on the 69.15 million Talbots shares outstanding as of Jan. 28, the offer would have valued the business at about $211 million.

The scuttled deal raised concerns about the future of Talbots, offsetting an improved operating result in the first quarter.

“Irrespective of their financial results, the business isn’t healthy,” said Abe Garver, a principal at boutique investment firm Focus Investment Banking. “I’m not impressed with the turnaround. They are highly levered. They’ve talked to every potential buyer at this point. Nobody wants it. It’s not looking good.”

Talbots’s total outstanding debt more than doubled to $197.9 million from $86.8 million last year.

Talbots said Friday that first-quarter profit rose to $1.09 million, or 2 cents a share, from $739,000, or 1 cent, a year earlier. Sales in the quarter ended April 28 fell 8.4% to $275.9 million.

On an adjusted basis, the company said profit was 9 cents a share. Analysts surveyed by FactSet were looking for a loss of 2 cents a share on sales of $272.5 million.

Comparable-store sales, including those from the Internet and catalogs, fell 3.8%. Analysts surveyed by Thomson Reuters had expected comparable sales to decline 5.2%.

Talbots is also seeking a successor to President and Chief Executive Trudy Sullivan, who plans to retire. Sullivan’s moves to shut stores, exit the men’s and children’s businesses and introduce marketing campaigns featuring actress Julianne Moore had failed to reverse declining sales.

Talbots has closed 90 stores since in March 2011, including eight in the first quarter, and said it expects to close a total of about 110 stores. It ended the quarter with 540 locations, including 47 upscale outlet stores.

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